Federal employees will be allowed to carry money on their health savings accounts into the next year following a months-long lobbying effort by Sen. Ben Cardin of Maryland and other lawmakers in the region.
Some 323,000 federal workers set aside a portion of their earnings, tax-free, in flexible spending accounts, or FSAs, to pay for health expenses. Until now, they have forfeited money not spent by the end of the year.
The Office of Personnel Management announced last week that employees would be allowed to carry over up to $500 beginning in 2015. The decision followed a new Treasury Department rule last year permitting that practice for private-sector companies.
Federal employee unions supported the change.
The new rules "should encourage more employees to participate and take advantage of the savings in taxable income," J. David Cox Sr., national president of the American Federation of Government Employees, said in a statement.
Cardin, a Democrat whose state is home to one of the largest concentrations of federal workers, made the issue something of a pet cause. He introduced legislation on the FSAs along with Republican Sen. Michael Enzi of Wyoming and organized a letter to OPM in December calling on the agency to adopt Treasury's new guidelines.
"Allowing federal workers to roll over some FSA funds into the next year just makes sense," Cardin said. "Use-it-or-lose-it was a wasteful practice."
Lawmakers said the annual cutoff, which had been in place for nearly 30 years, encouraged participants to spend money at the end of the year on medical expenses they didn't need, just so they wouldn't lose money in their accounts.
The plans had a two-and-a-half-month grace period. Still, Cardin's office noted, nearly 31,000 federal workers forfeited an average of $392 each in contributions to the accounts at the end of 2012 to the "use-it-or-lose-it" rule.
"This rule will remove anxieties when planning for out-of-pocket medical expenses," said William Dougan, national president of the National Federation of Federal Employees. "Having a uniform policy between private-sector employees and federal employees is smart government."
Cardin was joined by Sen. Barbara A. Mikulski of Maryland as well as Virginia's twosenators — all Democrats — in praising OPM's decision.
"Federal employees deserve the same FSA flexibility recently granted to private sector employees," Mikulski said in a statement. The Treasury Department estimates that 14 million families, including private-sector workers, are enrolled in health FSAs nationwide.
The OPM announcement was dated Aug. 27, but the agency began alerting employees Wednesday. Federal workers will begin choosing their health care plans for next year in November.